When someone looks at a company like eBay (EBAY +0.19%) and asks whether they should buy its stock today, what they might really be asking is whether this "archaic" company is still worth believing in. I think the answer lies in what kind of business eBay is becoming, and whether the market is still pricing it like the company it used to be.
Next week, when eBay reports quarterly results on Feb. 18, analysts expect it to report fourth-quarter earnings per share of around $1.35 on revenue of roughly $2.87 billion.
Those numbers align with management's guidance from October, which calls for high-single-digit revenue growth and 5% merchandise volume (GMV) expansion at the midpoint. At first, all that sounds not that exciting or alarming, but it shows that the business continues to grow.
In its most recently reported quarter, revenue rose about 9% year over year, and GMV climbed 8%, showing the marketplace still works even when consumers are feeling an economic pinch.
If you capture attention, you capture money
But the interesting story here is how eBay makes money from attention, not from the items sold on its platform. When I first thought about it, I thought perhaps Amazon was slowly stealing eBay's lunch, but the more I dug in, the more I realized that premise is outdated.
eBay's advertising business has been growing faster than the rest of the company, and that changes the quality of its earnings. Ad revenue doesn't require inventory, warehouses, or shipping infrastructure. It's a high-margin, recurring model. In the third quarter, the company said advertising generated $525 million of revenue, 2.6% of GMV.
Image source: Getty Images.
That's where I think the market is still behind the curve. eBay isn't a resale marketplace fighting Amazon anymore; it's a platform with a growing advertising engine underneath it.
It's becoming a monetization platform layered on top of an entrenched seller base, with AI-driven discovery tools and promoted listings designed to extract more value per transaction.
That's not the kind of flashy story that makes for an easy one-year trade, but it is a durable one. And when you pair that steady evolution with eBay's consistent share buybacks and dividend, the company starts to look like a steady cash-generating platform.
NASDAQ: EBAY
Key Data Points
Is the stock a buy?
That said, I don't think it makes sense to buy eBay before its next earnings report in hopes of a quick pop.
Consumer spending remains uneven, competition is relentless, and macro pressures are mounting on e-commerce sentiment overall.
So I would suggest buying eBay only if you're willing to hold it for years, not quarters, and only if you believe the advertising and platform shift will matter more over time.
If earnings disappoint, the stock could dip, and that's when I would start considering an investment. If earnings surprise to the upside, great, but that shouldn't be the reason you own it.
